Extreme starts anew after Enterasys buy

Now that Extreme Networks has closed its acquisition of Enterasys, it's time to focus on the task at hand as a company twice its previous size.

Both Extreme and Enterasys had annual revenues around $300 million pre-merger. Extreme now has more credibility as a $600 million company with twice the market share in Ethernet switching 2.4% of the $20 billion worldwide market, good for a No. 4 ranking, according to Dell'Oro Group.

Previously, Extreme and Enterasys were well down in the pack, holding 1.1% and 1.3% respective shares in 2012. With the merger they go from the ranks of Alcatel-Lucent, Avaya and Netgear to Juniper, Huawei and Dell.

Extreme actually leapfrogs Dell, Brocade, IBM and DLink in the market share rankings with the Enterasys acquisition, according to Dell'Oro.

"Competing in the switching space as a $300 million company is extremely challenging because you just don't have enough scale to invest in R&D and marketing across the breadth of the product line," said Extreme's new CEO Chuck Berger in an interview with Network World. "Our P&L (profit and loss) wouldn't afford investing in certain product areas. Getting scale and a market share position that gave us credibility was extremely important."

In addition to scale and market share, Extreme inherits a customer base and fills two "very large product gaps very well," Berger says: wireless and network management.

Extreme currently has an OEM arrangement with Motorola for WLAN gear that is less than ideal, according to Berger. Motorola competes with its OEM customers and offers margins that are less appealing than if the customer owned the WLAN product it resells.Brocade recently ended an arrangement with Motorola, opting instead to resell Aruba WLAN gear .

And Enterasys was always renowned for its network management, secure switching and network access control (NAC) capabilities. Berger was particularly impressed with Enterasys' NetSight network management system, which provides a centralized, policy-based single-pane-of-glass view and control of the wired/wireless campus infrastructure.

And the Enterasys switches those of the "K" and "S" series have an internally developed ASIC called CoreFlow2 which provides deep packet inspection to enable them to deliver actionable data to NetSight and enforce its NAC policies.

Berger said Extreme is still undecided on whether it will continue development of the CoreFlow2 ASIC. Both Extreme and Enterasys switches are built with Broadcom chipsets, and if merchant silicon can replicate the capabilities of CoreFlow2 there may be no need to continue the ASIC's development.

"We will continue to support and develop a chip strategy going forward depending on what's already in the next generation of development for CoreFlow2, as well as what we see happening in merchant silicon," Berger said. "It depends on the state of merchant silicon down the road as well as next-generation CoreFlow2."

With all of this new technology, Extreme plans to focus intently on the wired/wireless convergence opportunity in the campus, as well as Big Data applications in the data center. Eighty percent of the combined company's revenues come from the campus and it has enjoyed some high-profile wins emphasizing mobility and BYOD: the NFL's Philadelphia Eagles and its Liberty Financial Field home; and Gillette Stadium, home of the New England Patriots.

"This is a trend throughout sports arenas that we will put a heavy emphasis on," Berger said. The combined company plans to grow better than the 6% to 8% rate for wired campus infrastructure, and the 20% to 25% rate for wireless.

"We will put significant emphasis on [what] Enterasys as a standalone company was not able to do," he says.

Data center infrastructure, meanwhile, is growing north of 50% and Extreme plans to map its own data center growth right along with that. Its new Summit X770 top-of-rack switch is targeted at Big Data applications, and the company plans to unveil 100G Ethernet switching in the first half of next year for Internet Exchange Point customers, Berger said.

All of this opportunity with a combined Enterasys/Extreme company began to happen in the first days of Berger's job as Extreme CEO."Gores Group decided to sell Enterasys to someone as fast as they could," he said. "So the opportunity was presented to me literally on my first week on the job -- my third day on the job."

Berger, who earlier in his career did stints at Apple, Sun and Nuance among others, had just decided to come onboard as Extreme CEO after conducting some due diligence on the company.

"The consistent feedback I heard is that we have excellent hardware and operating system technology," he said. "I could not find one person that would not tell me that the technology was not only good but at the head of the pack in the industry."

It didn't hurt that Extreme also had $200 million cash on hand and a loyal installed base of several thousand customers.

"It looked like a formula for success," Berger said.

He says it's now time for Extreme to end many years of cost cutting and start investing again in lead generation, marketing, service and support... and acquisitions.

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